Mistakes to Avoid When Creating a Business Plan

The business plan contains sensitive information about every aspect of the business and the personal financial status of all owners. Therefore, it should be treated like a top-secret document.

In a previous post where we discussed tips for writing a good business plan, we stated that your business plans show how you’ll get from “here to there”. And thus, business plans must be well crafted avoiding the following mistakes.

• Submitting a “rough draft” of the business plan.

• Coffee stains and crossed out words indicate to the reader the owner is not serious about the business – there are a number of businesses or printers that can help the small business owner with professional quality presentations.

• Outdated historical financial information or industry comparisons will indicate a lack of current research and investigation on the owner’s part.

• Unsubstantiated assumptions can undermine a business plan.

• The owner must anticipate doubts or questions about every point of the plan.

• Failure to consider potential problems will lead the reader to view the plan as unrealistic.

• A lack of understanding of financial information is a drawback.

• If an outside source is used to prepare financial statements, the owner must fully comprehend the information.

• Absence of any consideration of the impact of outside influences on the business is a problem.

• The owner needs to discuss the potential impact of competitive factors as well as economic factors at the time of the request.

• Difficulties will arise if there is no verification of 30% investment by the owner. The lender will typically expect the potential owner to have at least 30% equity in potential business.

• If the owner does not or cannot personally guarantee a loan, questions will arise.

• Proposing unrealistic loan repayment terms.

• After the lender evaluates the viability of a business, he will discuss realistic loan terms.

• Too much focus on collateral is a problem in the business plan. Even for a cash secured loan, the banker is looking toward projected profits for repayment of the loan. Emphasis should be on cash flow.

All copies should be consecutively numbered and strictly accounted for in writing. All recipients of the plan must sign an agreement that s/he will not make copies of the plan or disclose details to anyone other than financial advisors.

The receipt also requires that if the person is not interested in investing in the company’s future growth, the business plan will be returned. Distribute the business plan on a strict “need-to-know” basis for the protection of the business and all those involved.